- GBP/USD has suffered heavy losses on disappointing UK data.
- Technical bearish pressure increased after the pair broke below 1.3000.
- Next static support for GBP/USD is located at 1.2850.
GBP/USD has lost its traction after extending its rebound toward 1.3100 on Thursday. Pressured by cautious comments from Bank of England (BOE) officials and disappointing data releases from the UK, the pair came under heavy bearish pressure early Friday and was last seen trading at its lowest level since November 2020 below 1.2900. Although profit-taking ahead of the weekend could help the pair rebound, buyers are unlikely to show interest in the British pound given the severity of the latest decline.
The UK's Office for National Statistics reported on Friday that Retail Sales declined by 1.4% on a monthly basis in March. This print followed February's contraction of 0.5% and came in much worse than the market expectation for a decrease of 0.3%.
Commenting on the state of the economy on Thursday, BOEGovernor Andrew Bailey noted that the UK's inflation shock had more in common with the eurozone than the US. "We must not be complacent about inflation expectations," Bailey added while reiterating that they are walking "a very tight line between tackling inflation, and the output effects of real-income shock."
On the other hand, the greenback regathered its strength following a sharp downward correction mid-week and forced GBP/USD to push even lower.
Fueled by FOMC Chairman Jerome Powell's hawkish comments at the IMF event, the benchmark 10-year US Treasury bond yield is rising more than 1% on a daily basis, providing a boost to the greenback. Moreover, the risk-averse market environment, as reflected by a more-than-0.5% decline in the UK's FTSE 100 Index, is helping the dollar find demand as a safe haven.
In the second half of the day, BOE Governor Bailey will be delivering a speech. April Manufacturing and Services PMI data from the US will also be looked upon for fresh impetus. Unless risk flows start to dominate the markets, GBP/USD should remain under bearish pressure regardless of the US data.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the four-hour chart fell below 30 early Friday. Although this development suggests that the pair could stage a correction before the next leg lower, buyers are likely to stay on the sidelines until the pair clears 1.2970 (former static support) and 1.3000 (psychological level).
On the downside, 1.2850 (static level from October 2020) aligns as the next bearish target ahead of 1.2800 (psychological level) and 1.2730 (static level from October 2020).
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